Restrictions on the supply of new housing are making California's cities increasingly unaffordable.

Michael Flippo/Dreamstime.comThere are a number of ways to measure California's housing crisis, from looking at the percentage of renters paying over 50 percent of their income in rent (28 percent) to where the state falls in housing per capita (49th). Yet another data point to include on the roster is the number of homes in the state that are worth over $1 million dollars.

Last week, real estate listing company Trulia released a new report which looks at the number of $1 million residential properties in each city, finding that California cities have by far the largest percentage of seven-figure homes in the nation.

"Of the more than 15,100 larger neighborhoods nationwide included in this analysis, 838 had a median home value of $1,000,000 or more, roughly two-thirds of which are in California," writes Felipe Chacón, the report's author.

San Francisco, perhaps unsurprisingly, leads the pack with a whopping 67 percent of homes valued at over $1 million. When you zoom out to look at the San Francisco metro-area—which includes a number of wealthier suburbs not in city limits—that number jumps to a full 81 percent. The estimated median home value in the Bay City is $1.3 million.

The runners up? The Bay Area cities of Oakland and San Jose, with 30 and 70 percent of homes in their metro areas priced in the seven-figure range.

Of the top ten metro areas with the largest percentage of $1 million homes, seven are in California.

The non-California cities in the top ten are Honolulu (where 20 percent of homes are worth upward of a $1 million), Seattle (13 percent), and Long Island in New York (10 percent).

Across the U.S. writ large, only 3 percent of homes are worth more than $1 million.

To be sure, the rise in home prices is a national trend, with very few metro areas seeing prices stay flat or decline according to the Trulia. Yet, that California is so far out ahead of the pack suggests something is off with land use in the Golden State.

One explanation is that California cities have placed severe constraints on building new housing, says Michael Manville, an associate professor of urban planning at University of California Los Angeles.

"The hallmark of a housing crisis is not that your new housing is expensive. New housing has always been more expensive than existing housing. The hallmark of a housing crisis is when a junky looking bungalow in Venice costs $1 million dollars that was built in 1985," Manville tells Reason.

That is hardly an exaggeration. Back in April, a burned down shack in San Jose went on the market at $800,000, and sold for over $900,000 a few days later.

"That can only happen when there is an absence of supply to match an increase in demand," Manville says. "The reason we have this, of course, is that for a variety of reasons we don't allow enough new housing to sort of contain this price appreciation."

Indeed, in Los Angeles, over 75 percent of the city is zoned for only single-family homes or duplexes, according to Curbed. Something like 75 percent of San Jose is also single-family housing. In San Francisco, single-family homes make up 30 percent of the city's housing stock, but take up some 60 percent of the city's land.

Making matters worse are lengthy permitting approval processes for new construction that can stretch out the delivery of projects by years. The more units of housing a project adds, the longer it will typically take to get through this process.

On top of all of this is a system of taxation—ushered in by California's famous/infamous Proposition 13—which puts strict limits on local governments' abilities to increase property taxes. As much as libertarians might like that, an unintended side effect is that local governments go hunting for new revenue elsewhere, often settling on imposing fees on new construction.

According to work done by the University of California Berkeley's Terner Center, per-unit fees on new construction in California hover around $20,000, or three times the national average.

This further disincentivizes home construction, and raises the property values of existing homes even more.

It also creates a toxic political economy whereby local governments and home owners are incentivized to support existing laws limiting new development.

For homeowners, the logic is pretty clear: new housing supply would reduce the value of their property, thus they are more likely to oppose new development.

For cities, it's a little more complicated.

Constrained in their ability to raise property taxes, city governments try to shift the burden of providing public services onto developers.

Sometimes, as mentioned, that's through direct fees. Other times, local governments get their pound of flesh by conditioning project approval on the developer agreeing to build a park, repave streets, or reserve space in their planned building for community purposes.

If cities let go of their ability to shoot down new developments, says Manville, they also let go of their ability to extract concessions from developers.

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city governments try to shift the burden of providing public services onto developers.

If only they could raise property taxes, they wouldn't do this. Because we all know that the main problem with CA's state and local governments is the generally low taxes they collect. If they could just raise taxes a little bit more they wouldn't need to gouge developers this way.

Actually, if you not only taxed income at 100% but included a 100% tax on total worth, it would only cover a little over a year of the national budget deficit.
The next year, there wouldn't be enough to collect to cover that one.

The shack didn't sell for $900,000 the land it sits on sold for $900,000.

On top of all of this is a system of taxation—ushered in by California's famous/infamous Proposition 13—which puts strict limits on local governments' abilities to increase property taxes. As much as libertarians might like that, an unintended side effect is that local governments go hunting for new revenue elsewhere, often settling on imposing fees on new construction.

But if the local governments obtained this money by raising property taxes, the effect would be the same. Property taxes are a cost of owning land. It makes no difference is that $20,000 is paid at the begining in the form of construction fees or every year in the form of property taxes. Housing costs rise just as much either way. I am dumfounded that anyone could be dense enough to think that taxes would somehow not be paid by the homeowner if only they were in the form of property taxes instead of contruction taxes.

The taxes will be paid by the homeowner who moves into the home and cannot yet vote against the politicians who implemented it. The person who moves in will be wealthy enough to pay that tax. The low income locals are protected from a tax hike and enjoy the benefits of the tax revenue paid by the wealthy new comer. If the wealthy newbie is here on a work visa, he won't be able to vote for a long time.

See how this works? And I thought telling Democrats to get off the plantation was just a figure of speech.

Because the new folks in town don't benefit from services as a result of paying these construction fees indirectly through higher home costs. The money goes down a money pit full of patronage to the good old boys.

Down in Orange County, we have a ton of new housing developments. You pay a special assessment- called a Mello-Roose tax, and that extra fee goes for about 2 decades or so, and funds builing the new school, water, power, and street infrastructure. It is paid for in addition to the property taxes on your million dollar home.

If you don't want a brand new school, you can buy in a different part of town. You will still pay property taxes on a million dollar home, but you will not pay the MR tax, and your kids will go to a 30 year old school.

Whenever we develop here in Texas, we're always responsible for building the new roads, sewer, water, and storm sewers. And if the new development requires that the existing main be resized, we get to pay for that too.

Not sure I see what the problem is, don't we want those things to be done by private actors, even if it eventually gets turned over to the local gov?

The houses in SF area are worth a million dollars or more for a reason.
The Big Tech moguls live there so they don't have to step in all that human feces that plagues downtown SF or
mingle with all those awful, dirty and human inferiors that have to live in work in downtown SF.
I mean, what next?
Have all these millionaire and billionaires breathe the same air as everyone else?

I was living in CA at the time Prop 13 passed, and in a very handy way. Property taxes were driving all older, fixed income people, out of their homes, in some of which the owners had been born and grew up in.

How about some efficiency in government use of the taxes they do collect?

-Bay Bridge, damaged in earthquake in '89, new bridge finally completed in 2013--23 years. By comparison the Golden Gate Bridge started in 1933, one of the longest suspension bridges in the world for many years, completed in 1937, using I might add 1930s technology. Don't even start with me about estimated cost compared to actuals.

-No new freeways built in the last 40 years while the population has more than doubled.

-The famous Bullet train that starts in no-wheresville and terminates where no one wants to arrive. Estimated at start at 2B, last estimate 5B.

-A fifty plus condominium tower in down town SF that is and continues to lean. Last estimate 16 inches. This in earthquake country. Next door to it is a multimillion dollar bus/transportation building where they have just found a crack in one of the major steel beams holding up the roof.

A better pointee is the fact that the whole area where that building was built is landfill, and there are much smaller buildings all over the area that have suffered some form of damage from land subsidence (due to settling of the fill, not related to earthquakes). In fact the bus station you mention also has subsidence related problems.

Yes. In the 1950s it was paradise. But then the Hippies showed up in the late 60s and the communists quickly followed and it has been a lunatic asylum ever since. It was pretty much gone by the late 1960s. I remember reading an account of the Altemont disaster. The whole thing was really shocking at the time because bands had done big free concerts numerous times in the couple of years leading up to it. The Rolling Stones had played to a half a million people in Hyde Park London the previous July without incident. Woodstock had come off with a lot of headaches but no violence. The Rolling Stones had just done a 15 city tour of the US without any incident. So, they could be forgiven for thinking doing a free show at a racetrack in the hills east of San Fransisco was no big deal.

What they didn't understand was San Fransisco was not London. By that time, the scene there was already fucked up and violent beyond anything seen in even London or LA. Even the Rolling Stones didn't fully comprehend what a fucked mess San Fransisco was. And that was in 1969 and it has only gotten worse since.

I'm reading a Dead Kennedys bio and they were making the point everyone from London was *from London* and so treated it w/respect but everyone from SF was from *somewhere else* and did not treat the city the same.

"by the late 60s" predates me a little, so my whole life

>>> half a million people in Hyde Park

the Blind Faith show from Hyde Park is one of the best concerts I've ever seen (on tv)

Even the Rolling Stones didn't fully comprehend what a fucked mess San Fransisco was.

The scene in SF, while dirty and smelly, was largely peaceful. The Stones were far from the only band at Altamont - Jefferson Airplane and the Grateful Dead and, IIRC, a couple of other SF-based bands were involved also, who were coming from the Haight-Ashbury flower-power scene, which had a lot in common with "Swinging London."

The key miscalculation, IMHO, was Jerry Garcia's brilliant plan to have the Hell's Angels (based in Oakland) provide security. From what I understand, Oakland-Berkeley were a completely different vibe in the 60s from Haight-Ashbury. The East Bay wasn't flower-power - it was Hell's Angles, Black Panthers, and Yippies. Molotov-cocktails, riots and knife-fights. Bank bombings and revolutionaries. Totally different head.